Guide to Student Loan Debt, Bankruptcy, and Rehabilitation

Can a student loan consolidation help me better manage my debts?

Your student loan debt may be easier to manage if you combine them into one consolidated student loan. When you talk to a bank about student loan consolidation, you may find that you can convert your variable rate loans into one with a fixed rate and a longer repayment period. This could help you better manage your overall debt by reducing your monthly payments.

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Why rehabilitate a bad student loan?

Defaulting on your student loan will keep you from getting any additional federally-funded student loans. To get yourself in a position where you can once again qualify for federal funds, you would need to rehabilitate your student loan. By making timely payments once again on your student loan for between nine and 12 months (depending on the type of loan), you can restore your credit history and improve your ability to get future federal loans.

Try to avoid defaulting on your loan by looking at options like a student loan consolidation before it’s too late. If you already missed the boat and have defaulted, you will need to first rehabilitate your loan and then see if you can consolidate your college loans.

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Can the government garnish my wages for student loan debt?

When you accept federally funded student loans to help you pay for your college education, you accept all of the responsibilities that come along with the money, including repaying them later. If you fall into “default” because you are not making scheduled payments, this appears as a negative item on your credit report and also means that the government will have to take action against you to get the money back. One possibility that they can take advantage of is wage garnishment. This is not ideal for you or the government. When they garnish your wages, it is mandatory for your employer to comply. Unfortunately, you may be left with too little funds to pay your other expenses.

The government does not turn to this option until you become seriously behind in making your payments. This means that once you realize that making the payments is difficult, you can take other actions to avoid having it go to more serious actions. You could request a loan forbearance from your student loan servicer or even see if you could get your student loans consolidated. With the consolidation you may be able to lower your monthly payment by extending the term of your loan.

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How do I manage my college debts after graduation?

Your college debt can add up quickly. Avoid the surprise of your first bill for student loans by keeping track of how much you accumulate during your college years. Try to plan the monthly payment for your student loans into your budget after college. These debts like most others are reported on your credit history so you don’t want to default on a student loan. Failing to make the required payments can be detrimental to your future since the U.S. government can garnish your wages in order to get your required payments. This can greatly reduce the amount of money you have to live on each month. If making your payments becomes difficult, you can look into a student loan consolidation as a possible option. It could help you reduce your monthly payment and avoid a negative credit rating.

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Should I consolidate my student loans instead of include them in a bankruptcy?

Many people think that when they file bankruptcy they are able to eliminate all of their debts, including student loans. However, this is not the case since discharging education loans rarely occurs. In fact, to have that debt eliminated in bankruptcy proceedings, you would have to go before a judge and provide proof that repaying the loans is too much of a hardship. If a court finds that the student loan debt should be included, the full debt can be forgiven. Since it is very difficult to have it included in a bankruptcy, it may be better to see if other options, like consolidating your student loans, may ease your monthly financial burden.

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